If you haven’t already heard, student loan forgiveness was blocked by the Supreme Court.
Biden is still scrounging for ways to deliver on student loan forgiveness, even if it’s a roundabout way of doing it, but I’m not sure any of us have a ton of hope that he’ll actually be successful.
The good news? There are some new proposed regulations to the REPAYE income-driven repayment plan to make student debt a little more manageable (grabbed from Barrons):
- Cut the loan payments on undergraduate debt in half, from 10% of discretionary income to 5% of discretionary income. That’s a big difference.
- Change the definition of discretionary income from the amount by which adjusted gross income exceeds 150% of the poverty line to the excess over 225% of the poverty line.
- Reduce the time period until the remaining debt is forgiven from 20 or 25 years to as little as 10 years for borrowers who start off with less debt. For example, borrowers who enter repayment with $12,000 in debt will have the remaining debt forgiven after 10 years, with an additional year for each additional $1,000 in debt.
- Accrued but unpaid interest will no longer be charged on the SAVE plan, so there will be no negative amortization when a borrower’s income is insufficient to repay the debt.
These are great changes that may get implemented on July 1, 2024 if the final rule is published in the Federal Register by Nov. 1, 2023. We’ll see what happens, but these are some positive changes for the people who need it most.
If you’re feeling frustrated or sad or angry– I hope you know that’s valid.
Our system is SO messed up– we know that a more educated society is beneficial to EVERYONE, and yet– we make attending higher education so unaffordable that many of us only have the choice of not going, or taking out a ton of debt.
Those were my choices, back in the day.
I’m one of five children, and my parents made a modest living but sending us all to school? There was no way they could’ve done it and paid for it, so from the time we were little kids we knew we’d be taking out loans.
That felt normal to us. Like– yep, guess I’m going to start off “young adulthood” with nearly six figures of debt that doesn’t have a low-interest rate.
Between my five siblings– at some point, we had almost a half million dollars in student loan debt between us all.
I actually had the lowest balance– a whopping $80k in debt when I graduated from the University of Iowa (despite graduating a semester early AND going to community college for the first year and a half!!!)– bonkers right???
So I feel the pain. Even though I myself would not benefit from any forgiveness, I remember how that debt used to weigh on my every decision as a young adult.
It made me feel trapped and like I didn’t have any true options.
I don’t want that for us.
So What Do We Do Now?
So, I’m sure you’re wondering– well, what do we do now? How do we prepare for the impending return to payments?
Here are a few tips:
1. Make sure your income-based repayment plan is up to date. If you can’t afford your payments– call your provider NOW to see what options you have.
2. Start saving the amount you’ll have to pay in loans NOW.
Why? Cause we’re about to face a huge behavioral shift– from not having to pay down on our loans for the last 3 years, to having to pay them. We want to start practicing getting back into that habit now so that we don’t default on our loans when they start back up again (because that’ll be a big hit to your credit score that won’t go totally away for 7 years).
Start saving your payment in a HYSA NOW, and then you’ll have that extra cushion of savings when things start back up.
3. Consider refinancing your loans if you have a high-interest rate or can’t afford the monthly payment. Now, this option isn’t right for everyone but for those of you who have high-interest rate federal loans? Might be worth it to at least check out your rates.
Keep in mind, you will lose any federal protections (like forbearance, forgiveness, IBR, etc.) if you exchange your federal loans for private.
My Favorite Refinancing Company
Juno– they use the power of group negotiation to make sure you get the lowest interest rate guaranteed on the private market for your student loans.
They’ve also been known to strike deals that will give you cash back for refinancing. Not a bad deal, eh?
(This is an affiliate link which means I could get a kickback if you do refinance with them, but please know I’ll never recommend something I don’t LOVE or use myself. All my siblings have used Juno to refinance and I’m a big fan).
Keep in mind– just checking your rates doesn’t impact your credit score.
The only thing that will is if you accept a new rate.
I am deeply aware that refinancing and learning budgeting tips aren’t solutions to the real problem at hand: higher education is unaffordable. It simply comes at too high a cost.
And sadly, it’s not like the educators are typically making bank. As of Jun 28, 2023, the average annual pay for a College Professor in California is $52,790 a year. And that’s if you can graduate from adjunct, which for many can take the course of their entire career.
If you need a few days to grieve the news, do it. Make a plan to vote, get connected with local resources, and educate others with what you learn from your experience, and I’ll do the same.
But if you need a word of encouragement? There is a way through. It might be a bit rocky, but we can get there.
Remember the $80k of student loan debt I started with? Yeah, that was for two degrees: English and Spanish. I’m not telling you there is a way out and then secretly going to my high-paying job as a lawyer. You CAN do this.